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Governor Rick Snyder of Michigan recently signed the Qualified Dispositions in Trusts Act (“Act”), which becomes effective on February 5, 2017. With the passing of this Act, Michigan joins 16 other states which now allow Domestic Asset Protection Trusts (“DAPTs”). A DAPT is an irrevocable trust that, if certain legal requirements are met, can protect and shield the individual’s assets from creditors.

The key benefit of the Act is that the DAPT can appoint a trustee who is a person residing in the State of Michigan, such as an individual or Michigan corporate or professional trustee, as long as that person is not the transferor. Previously clients who wanted a DAPT had to have an out-of-state trustee in a jurisdiction such as Alaska, Nevada or Delaware. Therefore, the trustee now does not need to be an unknown person or entity. The previous out-of-state requirement discouraged many Michigan clients from creating a DAPT.

Individuals with significant assets which may be subject to creditors’ claims should strongly consider creating a DAPT. The Act provides that the transferor’s creditors may not reach assets transferred to the Trust after a 2-year period, subject to certain exceptions for fraudulent conveyances and bankruptcy. Also, the DAPT must be set up and funded prior to any claims being made by creditors. In addition, the transferor can receive a stream of income from the Trust, direct Trust investments, remove and replace trustees, and direct the distribution of the assets at the transferor’s death, with certain limitations.

If you believe a DAPT might be right for you, please contact the attorneys at Kotz Sangster to determine if it makes sense for you as part of your overall Estate Plan.